Efforts to blunt the impact of higher oil prices for energy consumers are doomed to fail
At the macro level, it is not possible to shield consumers from the impact of higher energy prices. For one thing, energy is an input to most everything else. It takes energy to raise crops, process them and get them to market, which means rising food prices. This is in addition to the fact that the same route that is a bottleneck for energy is also a bottleneck for fertilizer and many other vital commodities. Energy is even a notoriously major input to infotech these days, with data centers consuming on par with entire cities.
But the bigger issue is supply. If supply is reduced by 20%, that’s a brick wall that can’t be overcome by any political manipulation. Price is the mediator between supply and demand. Effective demand cannot sustainably surpass supply. Higher energy prices work to reduce consumption to the level of available production.
What if government policies such as subsidies made buyers of motor and heating fuel whole, so that they experienced no net price increases? Then demand would not be reduced and it would exceed available supply. But this isn’t possible. You can’t consume what hasn’t been produced. The only possible effect of price suppression, no matter how clever, can be to transmute price increases into shortages.
There’s no way around it. If supply goes down, so must demand.
Demand destruction?
As a child i watched the gas lines in America. I could not understand why in Gods name were American driving Gas guzzling land yachts? For me it was most agreeable when Ford went to the Fox platform for the Mustang.
I loved the SVO with its lighter 2.3 turbo engine……………but bit by bit the V8’s started to return. Worse still was the SUV & the Trucks. As for the Mustang or the like i don’t think going down to the dealership & getting sold an 800 bhp car is good for anyone.
I wonder if perhaps this little bru ah ah might be a blessing?
May be we can have something of a Re-sent?
Mike
It’s a global hit to standards of living, though not evenly distributed. The 20% decrease in energy is worldwide, but generally the regions that are most dependent on imports will be affected most. So if anything it will be milder in America than many other parts of the world because, unlike in many other things, and unlike in the seventies, it’s a bigger producer than consumer. That said, it won’t be unaffected because of global arbitrage. Beyond a certain price differential it becomes economical to move oil and gas around the world. The prospect of export tariffs has also been raised, which would allow a larger price differential too, although they might be politically fraught.
Electric cars are great, but not an energy panacea … batteries only store energy generated through other means, including fossil fuels. Though an electric car would be perfect for my driving of virtually all short trips. Probably a lot more people would buy them if they weren’t so expensive. Alas high import tariffs and regulations make affordable electric cars such as those now being made in China uncompetitive in the so called Land of the Free.